TUPE: Reasonableness of covenant judged at date contract entered into

19 November 2012

In the case of PAT Systems v Neilly when the Defendant employee joined the employer company in 2000 as an account manager he had signed a contract containing a 12-month non-compete covenant.

Over the years he received various promotions and, by 2012, although he was not a statutory director of the company, he was on the executive committee and had management responsibility for account management and business sales throughout the EMEA region.

In April 2012 he resigned and went to work for a competitor. Could the employer get a court injunction to enforce the restrictive covenant and stop him doing so?

The court accepted that he was going to compete with his old employer. Even though the two companies focussed on ‘different spaces in the market’ and some clients used them both, they were still competitors in the same market.

The test then is always whether the restriction is reasonable in extent and duration. When is reasonableness assessed? At the date the covenant was entered into – so, in this case, 12 years ago when the defendant was only a very junior employee.

The employer tried to argue that, every time the defendant was promoted over the 12 year period his contract was varied to a certain extent and the covenant should be treated as having been entered into afresh on every occasion. The court disagreed on grounds of policy and practicality. Employees are entitled to know when they are entering into a restrictive covenant, if only so that they can take legal advice on it.

In this case, at the time the employee entered into the contract in which the covenant was contained (so, in the year 2000), it was unreasonable to restrict such a junior employee from acting for a competitor for such a long period. It followed that the covenant could not be enforced against him now

Point to note

What should an employer do when an existing employee’s contract is varied and wants to make sure that an existing restrictive covenant is preserved or a new one created? The counsel of perfection would say that the employee should be asked to sign and return a copy of the new (varied) contract and their attention also should be expressly drawn to the continuance/creation of the restrictive covenant. We can advise further.

Other cases in the UK employment law update for November 2012:


> TUPE: Employees dismissed for refusing to accept post-transfer harmonisation of terms may claim re-instatement

> Collective redundancies: Timing and content of consultation